<PAGE> 1
[DELOITTE & TOUCHE LLP LETTERHEAD]
REPORT ON THE INTERNAL CONTROL STRUCTURE
To the Board of Directors
Valor Investment Fund, Inc.
Detroit, Michigan
In planning and performing our audit of the financial statements of Valor
Investment Fund, Inc. for the year ended July 31, 1997, we considered its
internal control structure, including procedures for safeguarding securities,
in order to determine our auditing procedures for the purpose of expressing our
opinion on the financial statements and to comply with the requirements of Form
N-SAR, not to provide assurance on the internal control structure.
The management of Valor Investment Fund, Inc. is responsible for establishing
and maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of internal control structure policies
and procedures. Two of the objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it
may become inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
July 31, 1997.
* * * * * *
This report is intended solely for the information and use of management and
the Securities and Exchange Commission.
Deloitte & Touche LLP
September 26, 1997
Detroit, Michigan
<PAGE> 2
VALOR INVESTMENT
FUND, INC.
Financial Statements for the
Year Ended July 31, 1997, and
Independent Auditors' Report
<PAGE> 3
VALOR INVESTMENT FUND, INC.
2290 FIRST NATIONAL BUILDING, DETROIT, MICHIGAN 48226
ANNUAL REPORT FOR THE YEAR ENDED JULY 31, 1997
To our Shareholders:
The financial statements of your Company for the fiscal year ended July 31,
1997, are included in this Annual Report. Net assets at July 31, 1997 were
$14,066,950, equal to $15.92 per share of common stock on the 883,525 shares
outstanding. Net asset value at July 31, 1996 was $15.57 per share, based upon
the same number of outstanding shares. The increase in net asset value at July
31, 1997 from the net asset value at July 31, 1996 is primarily due to an
increase in unrealized appreciation of investments in securities.
Your Company's net investment income for the year August 1, 1996 to July 31,
1997 was $769,433. Your Company has paid dividends of $.91 per share of common
stock from investment income during fiscal 1997. The $.91 is further broken down
into $.49 and $.42 per share of common stock which were paid on November 1, 1996
and May 2, 1997, respectively. In November 1997, your Company intends to pay a
final dividend from net investment income earned during fiscal 1997. The Board
of Directors intends to distribute substantially all of the Company's net
investment income earned during fiscal 1997.
Your Company's policy continues to be one of investment in tax-free municipal
bonds and project notes.
We wish to express our appreciation for your continued participation in the
Fund.
Respectfully submitted,
WILLIAM B. KLINSKY, PRESIDENT
- -------------------------------------------
WILLIAM B. KLINSKY,
PRESIDENT
<PAGE> 4
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
Valor Investment Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Valor
Investment Fund, Inc. (the "Company") including the schedule of investments in
securities as of July 31, 1997, and the related statements of operations and
shareholders' investment for the year then ended, and the statement of changes
in net assets for each of the two years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Valor Investment Fund, Inc., as
of July 31, 1997, and the results of its operations for the year then ended and
the changes in its net assets for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
September 26, 1997
Detroit, Michigan
<PAGE> 5
VALOR INVESTMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities - at market value (cost of $13,206,327) $13,892,459
Interest receivable 197,741
Prepaid expenses 3,750
-----------
Total assets 14,093,950
-----------
LIABILITIES - Accrued expenses 27,000
-----------
Total liabilities 27,000
-----------
NET ASSETS (equivalent to $15.92 per share based on 883,525 shares of
common stock outstanding at July 31, 1997) $14,066,950
===========
</TABLE>
See notes to financial statements
-2-
<PAGE> 6
VALOR INVESTMENT FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST MARKET
<S> <C> <C> <C>
MONEY MARKET FUNDS -
Dreyfus Tax Exempt Money Market Fund $ 115,139 $ 115,139 $ 115,139
----------- ---------- ----------
SHORT-TERM MUNICIPAL BONDS -
Oregon General Obligation, 5.900%, July 15, 1998 500,000 500,000 509,940
----------- ---------- ----------
Total short-term municipal bonds 500,000 500,000 509,940
----------- ---------- ----------
LONG-TERM MUNICIPAL BONDS:
Alaska State Hsg Fin Corp, 6.375%, December 1, 2012 275,000 272,639 304,937
Ann Arbor General Obl, 6.000%, September 1, 2009 100,000 98,103 105,671
Avondale School District, 5.800%, May 1, 2015 140,000 140,000 147,575
Bay County General Obl, 6.500%, May 1, 2004 500,000 500,000 513,210
Berkley City Sch Dist MI FGIC, 5.625%, Jan 1, 2015 270,000 262,061 280,074
Brandon School District, 5.600%, May 1, 2010 100,000 98,729 105,573
Brevard County Solid Waste Disposal, 5.700%,
April 1, 2009 100,000 100,000 103,824
Caledonia Comm. Schools MI, 6.625%, May 1, 2014 150,000 150,000 166,523
Carrollton Public School District, 6.400%, May 1, 2004 65,000 64,785 67,222
Carrollton Public School District, 6.400%, May 1, 2005 75,000 74,721 77,554
Carrollton Public School District, 6.400%, May 1, 2006 75,000 74,691 77,540
Carrollton Public School District, 6.400%, May 1, 2007 75,000 74,663 77,541
Cedar Springs Public School District, 5.875%, May 1, 2014 250,000 249,383 263,595
Central Michigan University Rev., 7.000%, October 1, 2000 210,000 226,765 231,525
Central Michigan University Rev., 5.500%, October 1, 2010 200,000 200,000 206,798
Central Michigan University Rev., 6.000%, October 1, 2013 100,000 100,957 105,768
Cheboygan General Obligation, 5.400%, November 1, 2015 100,000 98,877 103,166
Chicago Emer. Telephone Sys., 5.800%, January 1, 2013 100,000 100,000 104,411
Chicago, Illinois General Obl., 6.250%, January 1, 2012 200,000 207,189 216,484
Clintondale Comm. Schools, 6.500%, May 1, 2010 100,000 99,604 111,726
Cook County General Obl., 5.400%, November 15, 2008 200,000 200,000 210,346
Essexville Hampton Public Schools, 5.500%, May 1, 2117 150,000 146,111 153,510
Eugene Trojan Nuclear Proj Rev OR, 5.900%, Sept 1, 2009 145,000 145,644 145,077
Ferndale School District, 5.375%, May 1, 2116 100,000 98,015 100,164
Flat Rock Comm. School District, 5.25%, May 1, 2010 125,000 123,392 128,074
Flint, Michigan General Obl., 6.250%, November 1, 2003 100,000 98,539 102,254
Flint, Michigan General Obl., 6.250%, November 1, 2004 100,000 98,339 102,226
Florida General Obligation, 5.900%, October 1, 2008 250,000 244,960 254,125
Florida State Board of Education, 6.000%, May 1, 2005 500,000 500,000 550,980
Florida State Board of Education, 5.200%, June 1, 2016 25,000 22,975 25,043
Grand Haven Area Pub. Schools, 6.050%, May 1, 2014 165,000 163,439 175,568
Grand Ledge Public Schools, 6.400%, May 1, 2008 50,000 54,116 56,370
Grosse Isle General Obligation, 5.200%, March 1, 2008 25,000 24,635 25,790
Hudsonville Public Schools, 6.000%, May 1, 2009 100,000 100,000 108,050
----------- ---------- ----------
Total forward 5,220,000 5,213,332 5,508,294
</TABLE>
(Continued)
-3-
<PAGE> 7
VALOR INVESTMENT FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
JULY 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST MARKET
<S> <C> <C> <C>
Total forward $ 5,220,000 $ 5,213,332 $ 5,508,294
Huron Valley School District MI FGIC, 5.875%,
May 1, 2016 100,000 98,953 106,044
Illinois State Sales Tax Revenue, 5.400%, June 15, 2013 150,000 146,068 153,074
Intermountain Power Agency, 6.000%, July 1, 2016 315,000 322,782 315,097
Kalamazoo Water Revenue MI FSA, 5.625%, Sept 1, 2011 100,000 98,416 105,141
Kentwood Public Schools, 6.400%, May 1, 2015 500,000 500,000 542,000
King County General Obligation, 6.200%, June 1, 2002 500,000 500,000 500,790
L'Anse Creuse Public Schools, 5.500%, May 1, 2014 180,000 179,467 182,705
Lenawee County, MI Gen. Obl., 6.050%, May 1, 1999 100,000 100,000 101,477
Lenawee County, MI Gen. Obl., 6.100%, May 1, 2000 125,000 125,000 126,834
Lenawee County, MI Gen. Obl., 6.150%, May 1, 2001 125,000 125,000 126,826
Lincoln Consolidated School District, 5.800%, May 1, 2114 115,000 115,000 120,714
Macomb Water Sup. & Sew. Disp., 6.000%, January 1, 2012 200,000 200,000 208,274
Marysville Public School District, 5.750%, May 1, 2014 150,000 147,784 157,001
Michigan Higher Ed Stu Ln Rv, 6.000%, Sept 1, 2008 170,000 170,945 179,302
Michigan Municipal Bond Auth. Rev., 5.400%, Oct 1, 2014 100,000 96,380 102,177
Michigan Public Power Agency Revenue, 5.500%,
January 1, 2113 100,000 99,516 101,453
Michigan State Bldg. Auth. Rev., 6.250%, October 1, 2020 250,000 245,858 267,725
Michigan State Housing Development Authority Revenue,
5.600%, December 1, 2009 155,000 155,000 158,379
Michigan State Trunk Line Rev., 6.000%, August 15, 2019 250,000 241,847 253,383
Millington Community School Dist., 5.700%, May 1, 2005 100,000 93,766 102,260
Monroe County General Obl., 5.250 %, November 1, 2002 65,000 62,103 65,783
Mount Pleasant Water Revenue, 6.000%, February 1, 2015 340,000 333,407 361,264
Novi Community School District, 6.1250%, May 1, 2013 250,000 250,562 268,035
Oakland County General Obl., 6.200%, May 1, 2003 500,000 490,647 512,160
Oakland County General Obl., 6.000%, November 1, 2011 115,000 114,082 121,730
Oakland County General Obl., 6.000%, November 1, 2013 145,000 142,465 153,832
Orange County Sales Tax Rev., 5.250%, January 1, 2016 150,000 148,088 149,292
Orlando Util Comm. Water & Elec., 6.300%, April 1, 2003 250,000 251,413 275,553
Rochester Comm. Sch. Dist., 5.625%, May 1, 2009 35,000 34,657 38,226
St. Lucie County School Board, 5.375%, July 1, 2013 150,000 150,000 153,437
San Antonio General Obligation, 5.750%, August 1, 2013 110,000 110,258 114,597
Santa Monica, Cal Univ Sch Dist, 5.400%, August 1, 2009 50,000 50,000 52,346
Tarrant Co. Water Control, TX, 5.750%, March 1, 2001 150,000 150,000 158,216
University of Michigan, Revenue, 5.750%, April 1, 2003 75,000 71,310 75,914
University of Michigan, Revenue, 5.800%, April 1, 2010 230,000 230,000 243,713
Utica Community Schools, MI, 7.100%, May 1, 2006 75,000 75,000 82,399
------------ ------------ -----------
Total forward 11,695,000 11,639,106 12,245,447
</TABLE>
(Continued)
-4-
<PAGE> 8
VALOR INVESTMENT FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
JULY 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST MARKET
<S> <C> <C> <C>
Total forward $11,695,000 $11,639,106 $12,245,447
WA State Public Power Supp., 6.00%, July 1, 2012 100,000 101,568 101,037
Warren Consolidated Sch Dist MI MBIA, 5.50%,
May 1, 2014 200,000 193,950 204,538
Washoe County General Obl., 6.200%, April 1, 2010 185,000 181,564 200,723
Yale Public Schools District, MI, 5.000%, May 1, 2005 125,000 125,000 128,048
Zeeland Public Schools, MI, 6.000%, May 1, 2010 100,000 100,000 110,739
Zeeland Public Schools, MI, 6.000%, May 1, 2014 250,000 250,000 276,848
----------- ----------- -----------
Total long-term municipal bonds 12,655,000 12,591,188 13,267,380
----------- ----------- -----------
TOTAL INVESTMENTS $13,270,139 $13,206,327 $13,892,459
=========== =========== ===========
</TABLE>
See notes to financial statements. (Concluded)
-5-
<PAGE> 9
VALOR INVESTMENT FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 798,069
Gain on disposition 22,274
----------
Total investment income 820,343
EXPENSES:
Professional fees 35,990
Custodian fees 11,500
Other 3,420
----------
Total expenses 50,910
----------
NET INVESTMENT INCOME (equivalent to $.87 per share based on
883,525 shares of common stock outstanding at July 31, 1997) 769,433
UNREALIZED APPRECIATION OF INVESTMENTS:
Beginning of period 340,818
End of period 686,132
----------
INCREASE IN UNREALIZED APPRECIATION OF INVESTMENTS 345,314
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,114,747
==========
</TABLE>
See notes to financial statements.
-6-
<PAGE> 10
VALOR INVESTMENT FUND, INC.
STATEMENT OF SHAREHOLDERS INVESTMENT
YEAR ENDED JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK UNDISTRIBUTED UNREALIZED
------------ NET APPRECIATION
SHARES PAID-IN RETAINED INVESTMENT OF
(NOTE 4) PAR VALUE SURPLUS EARNINGS INCOME INVESTMENTS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 1, 1996 883,525 $883,525 $180,944 $11,967,524 $ 383,900 $340,818 $ 13,756,711
Net increase in net assets resulting
from operations 769,433 345,314 1,114,747
Dividends to shareholders
($.91 per share) (804,508) (804,508)
------- -------- -------- ----------- --------- -------- ------------
BALANCE AT JULY 31, 1997 883,525 $883,525 $180,944 $11,967,524 $ 348,825 $686,132 $ 14,066,950
======= ======== ======== =========== ========= ======== ============
</TABLE>
See notes to financial statements.
-7-
<PAGE> 11
VALOR INVESTMENT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED JULY 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 769,433 $ 819,857
Increase (decrease) in unrealized appreciation 345,314 (1,759)
----------- ------------
Net increase in net assets resulting from operations 1,114,747 818,098
DIVIDENDS TO SHAREHOLDERS FROM INVESTMENT
INCOME 804,508 804,008
----------- ------------
INCREASE IN NET ASSETS 310,239 14,090
NET ASSETS:
Beginning of period 13,756,711 13,742,621
----------- ------------
End of period $14,066,950 $ 13,756,711
=========== ============
</TABLE>
See notes to financial statements.
-8-
<PAGE> 12
VALOR INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JULY 31, 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is registered under the Investment Company Act of 1940, as
amended, as a closed-end, diversified management investment company. The
following is a summary of significant accounting policies followed by the
Company in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles.
INVESTMENT SECURITIES - Investments are reported at market value
determined principally by obtaining quotations from nationally recognized
valuation services or market value estimates from registered
brokers/dealers.
SECURITIES TRANSACTIONS are recorded on a trade-date basis. Cost of
securities sold is determined using the identified cost.
INTEREST INCOME, adjusted for amortization of premium or accretion of
discounts on investments in municipal bonds, is recorded on the accrual
basis.
INCOME TAXES - It is the Company's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to make distributions of income and realized capital gains sufficient
to relieve it from all or substantially all federal income taxes. No
provision for federal income taxes is required for the year ended July 31,
1997.
MANAGEMENT AND SERVICE FEES - No management fees have been paid or accrued
to outside organizations. A total of $800 in fees has been paid to
directors. The only service fees paid or accrued were legal, accounting,
custodian, and recordkeeping fees to unaffiliated persons.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION - The preparation of
financial statements in conformity with generally accepted accounting
principles requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. The Company's financial statements include amounts that
are based on management's best estimates and judgments. Actual results
could differ from those estimates.
-9-
<PAGE> 13
2. SECURITIES TRANSACTIONS
The following summarizes the changes in investments, at amortized cost,
for the year ended July 31, 1997:
<TABLE>
<S> <C>
Balance, August 1, 1996 $ 13,331,759
Plus:
Purchases 2,818,231
Discount accretion net of premium amortization 473
Less:
Matured securities (275,000)
Redeemed securities (2,669,136)
------------
Balance, July 31, 1997 $ 13,206,327
============
</TABLE>
Approximately $951,770 in purchases and $910,876 in sales were bond
transactions. The remaining transactions were related to the money market
fund.
3. TRANSACTIONS WITH AFFILIATES
The Company had no transactions with affiliated persons in the year ended
July 31, 1997, except as described in Note 1.
4. COMMON STOCK
There are 2,000,000 authorized shares of common stock, of which 883,525
shares were outstanding at July 31, 1997.
5. UNREALIZED DEPRECIATION AND APPRECIATION
The cost of securities for federal income tax purposes differs from the
cost for financial statement purposes because the cost for tax purposes is
adjusted by the amount of discount amortization only if the discount is
original issue discount.
The aggregate cost of securities for federal income tax purposes was
$13,006,253 at July 31, 1997. The gross unrealized appreciation and
depreciation computed as the difference between market value and cost for
tax purposes is as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized depreciation $ (8,783)
Aggregate gross unrealized appreciation 894,989
---------
Net unrealized appreciation $ 886,206
=========
</TABLE>
-10-
<PAGE> 14
6. PER SHARE DATA
The following are selected per share data based on the weighted average
shares outstanding during the year:
<TABLE>
<CAPTION>
Year Ended July 31
------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Investment income $ 0.93 0.96 $ 0.95 $ 1.05 $ 1.00
Expenses (0.06) (0.03) (0.04) (0.05) (0.04)
----------- ----------- ----------- ----------- -----------
Net investment income 0.87 0.93 0.91 1.00 0.96
Dividends from investment income (0.91) (0.91) (0.97) (0.96) (0.94)
Increase (decrease) in unrealized
appreciation 0.39 0.14 (0.46)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in net asset value 0.35 0.02 0.08 (0.42) 0.02
Net asset value - beginning 15.57 15.55 15.47 15.89 15.87
----------- ----------- ----------- ----------- -----------
Net asset value - ending $ 15.92 $ 15.57 $ 15.55 $ 15.47 $ 15.89
=========== =========== =========== =========== ===========
Weighted average shares outstanding
during the year 883,525 883,525 883,525 883,525 883,525
=========== =========== =========== =========== ===========
</TABLE>
7. INTEREST INCOME
The following details, by state, the interest income earned by the Company
during the year ended July 31, 1997:
<TABLE>
<S> <C>
Alaska $ 17,689
California 2,700
Florida 83,854
Illinois 36,940
Michigan * 536,834
Nevada 11,745
Oregon 38,001
Texas 14,934
Utah 18,480
Washington 36,892
--------
Total $798,069
========
</TABLE>
* Included in the Michigan total is $5,170 interest earned on a tax-exempt
money market fund for the year ended July 31, 1997.
-11-
